Let Compound Interest Work For You – Money Secret Part 2 of 3

In the spirit of wealth building, Stephen Young and I have put together a set of three articles to educate people on exactly how wealth is accrued. With the emergence of compound interest

books like Rich dad, Poor dad and the like, it seems that getting ahead is on everyone’s mind. The general consensus is that simply gaining a set wage, saving nominal amounts thereof and investing in RRSPs and Bonds aren’t going to get you that yacht you fantasize about either.

The topic to be explored in this article is Compound Interest; A fairly elementary example of ‘your money working for you’. Compound Interest arises when interest is added to the principal, so that from that moment on, the interest that has been added also itself earns interest. With many investment strategies interest is not compounded, you simply make interest on the principal amount invested.

Here’s an example of what I’m talking about:

Suppose Julie invests $1000 in a bank account paying 10% interest for three years. Julie does not make any additional deposits during this period. Her investment will grow as follows:
Scenario 1: Julie does not withdraw the interest:
Year
Start value
Interest
End value
1
$1000
$100
$1100
2
$1100
$110
$1210
3
$1210
$121
$1331
To benefit from compound interest, you must reinvest your earnings and not take it out of the account. It should also go without saying that compound interest works better over long periods of time. This is why experts encourage you to start saving your money early!
How to Build Wealth With Compound Interest
You benefit from compound interest without waiting decades to accumulate real wealth by investing in private mortgages. Unlike conventional mortgages that are typically amortized over a period of 25-30 years and compounded semi-annually with monthly payments (the lender benefits from this); Private mortgages are often structured in an interest only format and compounded monthly. This means that the borrower never pays down the principal amount, and the investor makes considerably more on their initial investment. Additionally, borrowers pay lender fees to orchestrate the mortgage and cover the legal expenses. Add to this the fact that your investment is secured against real property and you’ll never invest in GIC’s again. Most private mortgages are for 1 year terms, so your assets are liquid again after the first year (or sooner).
If you would like to learn more about how to invest your money and build wealth using compounding strategies, come to the Young Realty Academy on Wednesday, September 28th at 7pm. http://www.youngrealty.ca/ –> Young Realty Academy.

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